The biggest victim in the red hot real estate market… the buyer (Are we in a bubble or is this simple supply and demand economics?)
I’ve been in the real estate sales business for nearly one quarter of one century. I’ve never seen anything like the current market.
The real estate boom and bubble of the middle 2000’s pales in comparison to the current market. The nation as a whole has never in the history of time experienced such a seller’s market… such a low inventory market.
Supply and demand, here’s the definition from the Oxford dictionary:
the amount of a commodity, product, or service available and the desire of buyers for it, considered as factors regulating its price.
A house is the commodity, the product, the desire of buyers for it are of course the homebuyers that are at their wits end trying to find a home to buy… not just find a home to buy… despite the record low inventory levels… buyers are finding homes to buy – even though a lot of our clients are settling for homes to buy… “it’s not exactly what I’m looking for but I do need A PLACE TO LIVE!”
The buyers are at their wits end because they are finding homes to buy, homes that they are settling on, and then making ridiculous offers, many far above asking price, removing safety based contingencies like inspections and appraisals… and then begging their agent, to beg the seller’s agent… to beg the seller to sell them the house!
And still not getting the house!
We had one that went on the market last Wednesday for $289,900 with the disclosure that offers would be reviewed Sunday with the seller. We thought we were stretching the list price at $289,900… but no!!!
That tri-level style home that would’ve gone for maybe $220,000 just two years ago… went for $327,000 – as-is, no inspection, and a clause that states the buyer will bridge the gap between appraisal and purchase price out of pocket in the event the home doesn’t appraise.
“Say what?”
Another example. If you’re a regular listener I told you about the crack house slash lake house I bought for my wife Sparkle Barnbie back in late February. I bought it sight unseen.
And when I finally walked through it I wished I had never seen it hahahaha!!!
I have a funny video of the walkthrough with me, Sparkle, and JWow our right hand woman slash office manager.
In the video Sparkle is heard yelling, “Over my dead body!” when I suggested that with a little work the little cottage could be our summer lake house.
She’s also heard saying, “We’re backing out!” When we were all certain that the house was swaying a little bit with all of standing in one spot of the master bedroom… hahahaha!!!
This house is a total junk box. We did nothing to it. It has sat empty and lonely since we bought it in late February. Last week we finally decided that we weren’t going to make our lovable lake cottage, we weren’t going to make it a long term rental, and we weren’t going to dump a bunch of dough into it – renovate and flip… no.
We simply put it right back on the market, cash only, as-is and it was sold for ten grand more than I paid for it a month ago… AND I shut down the showings immediately.
The home sold on the very first night and I canceled all the scheduled showings because I didn’t want to monkey around with multiple offers and highest and best baloney.
And, the other day I read about an as-is abandoned house in Rhode Island that went on the market for two hundred thousand with disclaimers and disclosures about what a junk box it was, “Please don’t walk on the back deck, it is unsafe.” said the listing in the MLS.
The house gets 88 offers and sells for nearly half a million bucks.
Holy guacamole!
There are soooo many factors that is playing a role in this historic seller’s market. The low inventory of course is the leading cause. Incredibly low interest rates… so low that these low rates are kicking the super low rates of the mid 2000’s right in the cookie bag!
Low rates not only brings more buyers into the market, but it also allows the buyer more buying power, more buying range.
Another huge factor that I don’t hear anyone talking about… is the introduction of the millennials to the marketplace.
An entire generation harassed and picked on in the media… the millennials are not only buying homes… they are buying homes in record numbers.
We forget that the millennials are the biggest generation in the history of our country. There are over 72 million millennials – which now exceeds the height of the baby boomers – who were 71 million strong before they started to die off.
“Why are they dying off, Bart?”
Cause they’re old! Hahahahaha!
Laugh all you want about the millennials, call them snowflakes and thumbsuckers, and sure they’re buying homes a bit later in life as compared to the boomers and Gen X… but they be a buying.
They are now in their peak buying years, with the youngest among them being 25 years old and the oldest being 40.
So we have the lowest level of homes for sale in the history of mankind as compared with the number of homebuyers in the marketplace.
We have the lowest mortgage interest rates since before the dinosaurs.
And we have a wave of millennials buying up tons of places to call home. Add that to the fact that boomers are again buying second home and vacation homes (or at least attempting to) in record numbers… we end up with the biggest victim in all of this – being the innocent homebuyer.
But wait there’s more!
“On Bart, please no more!”
One more factor contributing to the scarcity of supply and the run up on demand for residential real estate… I bet you haven’t heard of or considered this curveball either…
Did you know that one of the biggest homebuyers statistically in this country right now… are the hedge funds, wall street, and institutional investors?
That’s right bucko, just when you thought you were only competing against a skinny jean wearing latte sipping snowflake… in comes the big dogs. The big dogs with all the money and the biggest appetite.
Why?
That’s actually a topic for another day. Why is smart money buying residential real estate? Great question. With an answer that I’ve been trying to tell you for years now.
I’ll give you a hint… Cashflow is King, Cash is Queen, and Debt is the Joker!
That’s all I’ve got time for today, but I will be back in your earbuds again very soon, I’ll answer the question: Why is smart money buying up residential real estate, and I’ll give you my predictions on whether or not we’re in the heated middle of a real estate bubble.
Until then, if you’d like to get your hands on my book notes (extensive, amazing, hilarious) book notes for the book How to Win Friends and Influence People head on over to realestategoodlife.com and help yourself.
How to Win Friends and Influence People is a must read for any real estate agent in the lovable persistent pursuit of the Good Life.
Have a great day my friend!
